Richard Carr, a Commercial and Residential Development specialist, looks at how the recent oil price fall will impact upon the property industry.
Winners and losers
With prices dropping as low as £33 a barrel, the collapse in oil prices has reshaped the world’s economy, but who is winning and losing?
For the general public, the electronic signs outside petrol stations over the past few months have been a big win. As a result, the oil crash is expected to boost spending power and as a by-product, house purchases.
Rate of inflation in the UK has reduced over the past few months, which could make real estate more attractive to investors thank to its good cash flow potential.
On the flip-side, there are fears that those investors who rely on an oil-based income could pull back from spending in the UK.
The UK has benefitted from foreign investment
Real estate in the UK has benefited immensely over the past 24 months from foreign investment, with Middle Eastern buyers in particular dominating the commercial and residential investment markets.
Sources working in the UK property industry suggested on propertyweek.com that some Malaysian investors saw the potential fall in oil and worked hard to complete deals at the end of last year.
A report from Starwood European Real Estate Finance is in no doubt over the potential impact on inward investment. “Oil-rich sovereign wealth funds are often large-scale buyers of real estate using surplus funds generated from oil revenues.
“Without such large surpluses (Saudi is running a deficit at the moment) their capacity for further acquisition may be tempered over the short-to-medium term.”
Richard Carr believes that there is no need to panic at the moment, however one needs to come to terms who is driving this position.
If you take the view that it’s driven by the Saudi Administration then we are in for a massive shock, in his opinion. If it’s purely a commercial decision to destroy all of the small cap operators by driving them into loss and stopping new investment by the big cap companies, then you know what is coming down the tracks and that is $200.00 a barrel at some stage, and OPEC ruling the roost again.
Alternatively, if you are like Richard and are of the opinion that this is a political move by the US and the UK to use oil as a weapon of choice then it will stay low for a long time.
Looking at the benefits to the US and UK, which is worth doing because that is what Merkel and Hollande are doing as they strut around on the world stage, whilst we’re staying in the background and at the same time sending our secret weapon to the Middle East, HRH Prince Charles – a coincidence, I think not!
Low oil prices ruin Iran, Russia, Venezuela and of course IS and not to forget all of the deals China have done on oil, which are probably void as they would have had a floor on them!
So, as long as Putin and IS are causing chaos the public will benefit, the cruel Irony is that he wonders what Mr Salmon would be saying now if the Scots had won Independence!